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The board of Rogers Communications Inc. (TSE:RCI.B) has announced that it will pay a dividend of CA$0.50 per share on the 3rd of October. Based on this payment, the dividend yield will be 3.4%, which is fairly typical for the industry.
Check out our latest analysis for Rogers Communications
Rogers Communications' Payment Has Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment was quite easily covered by earnings, but it made up 138% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Looking forward, earnings per share is forecast to rise by 103.8% over the next year. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.
Rogers Communications Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was CA$1.58, compared to the most recent full-year payment of CA$2.00. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Is Doubtful
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Rogers Communications has seen earnings per share falling at 5.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Rogers Communications' payments, as there could be some issues with sustaining them into the future. While Rogers Communications is earning enough to cover the payments, the cash flows are lacking. We don't think Rogers Communications is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Rogers Communications you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.